Sarbanes-Oxley and Corporate Governance Paper

Sarbanes-Oxleyand Corporate Governance Paper

Sarbanes-Oxleyand Corporate Governance

AllPCAOB members should not be taken from the investment community thatuses audited even financial statements.

PublicCompany Accounting Oversight Board is a body formed under SEC toperform numerous functions among them the protection of the publicinvestors. The body is mandated to take functions that are ofinterest to the public as a whole and not only the users of theaudited financial statements like the investors. Since the body willbe handling matters of finance, the board should comprise of memberswho have an insight to what the accounting profession entails. It’sa body that should have transparency and accountability in respect tothe services offered. The same should be exercised in the recruitmentof members before joining the board. During the recruitment exercise,equity should be exercised regardless of whether they use the auditedfinancial statements or not. If the applicant has the requiredqualifications to join the board, that particular applicant should beconsidered. The attainment of academic qualifications means thatapplicant is eligible to handle all the accounting responsibilitiesassigned to him. The Performance of the duties duly assigned does notdepend on the knowledge of having used the already publishedfinancial statements (Reed, Pagnattaro,Cahoy,Shedd,&amp Morehead,2012).Making the financial decisions will be based on the evidence providedby the financial statements but not the statements that have alreadybeen concluded. Therefore, the users may have or not have theaccounting knowledge. The board should not only base its dependencyon the users of the financial statement but on a broad spectrum ofthe accounting knowledge. The responsibilities will be too distinctand independent of any material not unless the comparison is neededwhereby the previous year’s financial statements will be reviewedand the appropriate comparison made.

Impactof the decision of the court

Theruling of the case meant that the board was constitutionally formed.The body could, therefore, continue to undertake all the regulatoryauthorities that it was mandated. All the acts of the board would,therefore, be considered constitutional. The auditors considered thisbody as a positive achievement in the profession that had positiveimpacts the investors and the capital markets (Reed et al., 2012).

Thevalidity of the board by the court also meant that some of the dutiesof the Sarbanes-Oxley Act will be undertaken by the PCAOB. Dutieslike the improvement of investor confidence will be delegated to theboard and also the duty of inspecting the independent auditors andtheir responsibility to the public. This action means that the dutiesof the overburdened SEC will be reduced, and the commission willimprove in the delivery of the duties not delegated to the board. Theaccounting profession will have a body that will be responsiblesetting the standards governing the field and making sure that the soset standards are enforced (Girasa and Girasa, 2013). There’sincreased certainty in the business community and the profession ofaccounting as a whole. The auditing firms will be subjected to athorough inspection process to determine whether their services areconstitutional according to the laid down standards and whether theyshow a true and fair view in their undertakings.

Independencewas a key to successful operation of the board. Having been validlyidentified by the court, this meant that its operation should not betampered with in any way by any outside party as its actions werefully distinguished from other organs and the only way it was toenjoy its freedom is doing its activities independently.

Theactions of the board were valid only and only if they were verifiedby the commission itself. This was an indication that though PCAOBenjoyed the independence it required to efficiently performs to theexpected level they had to receive the consent of the SEC for thestandards they had to set for them to be applicable. Therefore, nostandard is made by the board without going through the commissionor, the commission had no power to make any standard.

Onthe negative impacts part of the validation of PCAOB, the regulationof internal controls was vested on the hands of the board by theSarbanes-Oxley, which was just two pages. The board after thatexpanded these internal controls and was able to come up with almostthree hundred and thirty pages of regulations that consumed a lot ofmoney than anyone had anticipated. The compliance costs also havegone extremely high than it was estimated by SEC, and yet the boardhas failed to address the challenges of corporate governance(Zacharie, 2012).

Thedecision meant that the rule of separation of powers was violated.The president had powers to appoint and remove the board members ofSEC. It was observed that the board members of PCAOB could not beremoved by the president but only by SEC, whose activities were underthe control of the president. The members of the board wereanswerable to the commissioners and not the president. The presidentwould not therefore directly control the activities of the boardbecause they were not answerable to him. Despite the violation of therule of separation of powers, the formation of the board was stillvalid.


Girasa,J. R &amp Girasa, R. (2013). CorporateGovernance and Finance Law.Palgrave Macmillan.

Reed,O., Pagnattaro,M., Cahoy.,D., Shedd.,P &amp Morehead,J. (2012).Thelegal and regulatory Environment of Business 16e Ch15.McGraw-HillHigher Education.

Zacharie,B. L. (2012). FreeEnterprise V. Public Company Accounting Oversight Board.Verpublishing.